By Xu Xiaodan, Li Hongchuan King & Wood Mallesons’ Commercial & Regulatory group

A Troublesome Case for Arbitrator Zhang

For arbitrator Zhang, it has been a while since he encountered a troublesome employment dispute case last time.

“Do not be led by thoughts of the parties involved. Try to dig out the nature of dispute by yourself”, says arbitrator Zhang, to educate the young people who just join the Arbitration Commission. But in the case that this article is about to discuss, it seems that he is still having trouble making a ruling decisively.

Here is the case. An employee joined the company last March. At the end of March, he submitted a “Certificate of Diagnosis” of cervical spondylosis, claiming that he needed to rest for half a month as per doctor’s advice. Three days after approval of his sick leave, the company found that he posted several selfies took on the beach on his WeChat Moments, with the location shown as Brazil. The company believed that this employee intentionally applied for sick leave to take a holiday abroad, and the company was completely deceived by his dishonest behavior. On the ground of “gross misconduct”, the company terminated his employment contract. Consequently, the employee submitted the dispute to the Arbitration Commission.

After reviewing case materials, the Arbitration Commission found that the diagnostic was signed by the attending physician and sealed by the hospital, which means it is authentic. Meanwhile, the company’s internal policies do not restrict the location where employees may take their sick leaves. However, will these facts justify a ruling against the company? Arbitrator Zhang felt that it was unfair to rush to such a decision.

We may agree that Brazil is not a place that one could travel to without any preparation. It usually takes a long time to make plans, apply for visa and book hotels, etc. Moreover, the employee was in economy-class, making the journey look more like a planned trip rather than for recovery. Despite this, the company does not explicitly prohibit employees from going abroad while they are on sick leave. Is it illegal to make a termination decision only because the company lacks explicit provision in its internal policies? 

There Is Always One Provision Missing from Your List of Gross Misconduct

Before the Employment Contract Law became effective in 2008, as to the condition of terminating the contracts on grounds of gross misconduct, the corresponding wording in the Labor Law 1995 is “serious violation of labor discipline or the internal policies of the employer”. Here “internal policies” and “labor discipline” are of equal importance. It seems like that by setting the “labor discipline” in front of “internal policies”, the law deems it more important. In 2008, the Employment Contract Law came into effect. The wording of “labor discipline” was deleted and the expression became “serious violation of the internal policies of the employer”.

Legislators seem to believe that: without express provisions, relevant behavior shall not constitute a “crime”; and without express provisions, relevant behavior should not be punished. The internal policies are the company rules. If employees do not know what is prohibited by the company, then how come their behaviors constitute gross misconduct? We must say that this consideration is justified. “Labor discipline” enables employers to expand the scope of serious violation arbitrarily and often, too broadly.

However, once the law comes into effect, the judicial effect may go beyond the legislative considerations, resulting in a lot of “side effects”. First of all, some judges and arbitrators interpret and apply the law mechanically. When they hear the gross misconduct cases, they always look for relevant internal policies in the first place and hear the facts afterwards. Once they find out there is no effective internal policies, or related misconduct is not defined as a gross misconduct in the internal policies, they do not weigh too much on the facts that provided later on. Therefore, the company will definitely lose a lawsuit under this circumstance. Second, for some behaviors which seriously violate labor discipline and professional ethics, such as absence exceeding thirty days, though it is accepted from common sense that such behaviors are serious enough to justify the dismissal, it could still be hard for the arbitrator and judge to support the consequent dismissal in the absence of internal policies.

This is where the problem of arbitrator Zhang comes from.

Practices in History: “No Policy Equals to You Cannot Fire Anyone”

What can a company do under this legal environment? In some start-ups without any internal policies, the company cannot take disciplinary action against troublemakers. Meanwhile, if the company establishes internal policies which do not cover the alleged misconduct, the company will also have difficulty in dealing with it. Even if the company tried its best to list certain improper behavior in its policies, it will still have problem in dismissals if the democratic publicity procedures are not in place.

Take Beijing as an example. In nearly ten years since the Employment Contract Law entered into force, cases resulted from the above dilemma have emerged constantly, leading to some embarrassing situations and attracted media attention. Here are two simple examples:

  • In Tongzhou District, an employee working at the canteen of a company used the kitchen basin to clean her underwear. After being reported, the company verified the fact and terminated her contract. However, the Arbitration Commission ruled that the company lost the case because “the company did not provide valid internal policies” and the company should compensate the employee over RMB 70,000.
  • A similar case happened in a company in Haidian District. A female employee had a quarrel and fought with another female employee in the workplace. The company verified the fact and considered that it seriously affected the workplace order and terminated the employment contract with her accordingly. But the court held that “there was no written signature of the employee in the submitted employee handbook”. So the termination was illegal and the employee shall receive over RMB 50,000 as compensation.

The above results may look ridiculous; nevertheless, it is not the original intention of regulations regarding gross misconduct. Therefore, it is high time to adjust current laws and regulations to eliminate obstacles for the arbitrators and judges to apply laws appropriately. 

Beijing Meeting Minutes Three: In the Absence of Internal Policies, Labor Discipline Should Be Considered.

In April 2017, the Beijing Higher People’s Court and the Beijing Labor Dispute Arbitration Committee issued Beijing Meeting Minutes Three (officially named “Answers to The Law Application in Labor Dispute Cases”). In 2009, the Beijing Higher People’s Court and the Beijing Labor Dispute Arbitration Committee issued Meeting Minutes One, and in 2014, Meeting Minutes Two was introduced. This year comes the Meeting Minutes Three. The background for the document is that: first, many new problems emerged in employment disputes, calling for unified rules; second, more importantly, the public is expecting a set of amendments to the Employment Contract Law, in order to release the burden of the employers. Before the amendment is scheduled on the legislative agenda of the National People’s Congress Standing Committee, Beijing should take the lead to respond to the public’s expectation.

The document does make a difference. Meeting Minutes Three have 26 articles in total, of which 6 are related to the termination of the Employment Contract. As to the issue “how to rule in the absence of internal policies”, Article 13 in the Meeting Minutes Three explicitly provides that:

“The second paragraph of Article 3 of the Labor Law 1995 stipulates that ‘employees shall abide by labor discipline and professional ethics.’ The above provision is the basic requirement for employees. Therefore, if the employee conducts acts that are in serious violation of labor discipline or professional ethics, even if the internal policies and employment contract do not explicitly prohibit the acts, the employer may still terminate employment based on Article 3 of the Labor Law.

At first sight, this article is merely a reinterpretation of the Labor Law 1995’s articles. However, in the context of the history we introduced above, you will find that this article has far reaching impact on current laws and regulations. Undoubtedly, it is an article that summarizes problems in practice and provides corresponding solution.

First, the document indicates that employees should bear some implied basic obligations to the employer. According to the Labor Law 1995, these basic obligations are collectively referred to as “labor discipline and professional ethics”, which should be observed regardless of whether they are embodied in internal policies or employment contracts.

Second, in cases of gross misconduct dismissals, the judges and arbitrators should not be fastidious with the content of internal policies, and should not require the company to list details of misconduct like “no staff can go abroad for cervical vertebra treatment” or “washing underwear in canteen’s basin is prohibited”.

Last, what is “serious violation” of labor discipline and professional ethics? It is still subject to the discretion of arbitrator or judge on a case by case basis. With this reinterpretation, however, judge and arbitrator are no longer shackled by internal policies, leaving more space for protection of employer’s legitimate rights.

After reading the Meeting Minutes Three, here comes the question: how would you decide if you were arbitrator Zhang in this troublesome case?